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Korean Sociological Image #14: How And Why Koreans Became The World’s Greatest Consumers

If you’re reading this, then the news that Koreans now spend more and save less than Americans may well come as a bombshell.

I base that on the assumption that, as an English speaker interested in Korean sociology, most of your earliest and most-deeply held views on the subject were likely gained from English books. Nothing wrong with that of course, but in a society as rapidly changing as Korea, these can get dated rather quickly.

In turn, if one’s original views are not regularly updated by practical experience of the country and/or Korean-language sources, then they can easily become ossified. Alternatively, they can become hostage to those Koreans with English skills, whom — with no offense intended to the Korean journalists I very much rely on as a blogger — are generally well educated and more affluent than average Koreans, and undoubtedly have class-based agendas to the ways they present Korea to the outside world.

I realize that I’m very much projecting here. But then so fundamental has Korean’s high savings rate been to its postwar economic development, that I’d wager most readers shared my image of Koreans as relatively frugal (as a whole), either by reading that explicitly for themselves or by inferring it from other aspects of Korean sociology. Indeed, this ostensibly dry economic factoid had a profoundly gendered impact in the Korean context.

With apologies for the following necessarily simplistic account, a high savings rate was the natural consequence of the fact that, until the Asian Financial Crisis of 1997-1998, Korea had the most “salarymen” in the world (despite the term being associated more with Japan). As salarymen generally worked at the same company for most of their lives, and made enough of an income and side-benefits to provide for their wives and children, then there was only a minimal welfare state to provide for them should the need arise: hence, these savings provided the safety net that the state didn’t (as well as investment funds for Korean business).

Which brings us to the graph on the right, which shows that the books were not wrong. It would have been very difficult for historiography to have caught up with the massive drop in 1999 however, which the Washington Post article describes as “the steepest savings decline in the developed world.” In hindsight though, somehow Korean society had to pay for its huge transition from having the most salarymen in the world in 1997 to having the most irregular, part-time workers in the OECD less than a decade later. And the money certainly wasn’t obtained by women entering the workforce either, as despite having the lowest rate of women’s participation in the workforce in the OECD in 1997 – so the potential certainly existed – it has resolutely stayed at the same level ever since (see here and #2 here), not unexpected given that women were explicitly targeted for lay-offs as part of the economic recovery.

But this process of “housewifization” is the natural corollary of a male breadwinner system, and has in fact occurred in every developed capitalist economy as women became more valuable as consumers than as factory workers: Korea is merely the most extreme example. Hence prominent 1960s feminist Betty Friedan’s thoughts on the impact on women themselves still have a certain poignancy for Korean women even today:

Why is it never said that the really crucial function…that women serve as housewives is to buy more things for the house… somehow, somewhere, someone must have figured out that women will buy more things if they are kept in the underused, nameless-yearning, energy-to-get-rid-of state of being housewives…it would take a pretty clever economist to figure out what would keep our affluent economy going if the housewife market began to fall off (The Feminine Mystique, 1963, p. 197).

Friedan also pointed out that this consumption was a source of false autonomy, and that marketers in women’s magazines:

“…manipulated housewives into becoming insecure consumers of household products, by giving the housewife a ’sense of achievement’ to compensate her for a task that was ‘endless’ and ‘time-consuming’ (Oh & Frith, 2006, p. 10*).”

Part of that was the slogan “Consumption is Virtuous” that I originally planned to use in the post title, which comes from a translation of a late-1970s Korean newspaper report I read at university, and indeed the original Korean – “소비가 미덕이다” – rings a very faint bell in my wife’s mind. And given that Korea’s intense economic nationalism and high tariff barriers largely remain, then this is very much a phase that Koreans haven’t really left yet either, as reflected in the common theme to both of the advertisements in this post and the following commercial, which as I put here as being their:

…hyperreal associations of apartments and modern appliances with modernity and civilization, [so intense as to be] a huge qualitative and mental leap beyond any such links in the minds of Westerners. Or rather a leap backward to 1950s and 1960s, because, as with so much about Korean society, perhaps the Western concepts of consumption during and immediately after suburbanization there are a much more appropriate parallel.

And, from this related post, an apt demonstration of the fact that changing social mores are often difficult to disentangle from the capitalist imperative to create false needs for new products:

On that note, I accept (again) that the above is a very simplistic account of the history of the Korea economy, and if you’re after a more detailed economic discussion of this news about the savings rate specifically, then the comments to this post are a good place to start. I also accept that Koreans by no means consume to the extent that they do simply because of government policies, and so by all means read the additional reasons and examples mentioned in the Washington Post article. To which I would add this post and the following article from an old Korea Herald I’ve scanned, which explain why Koreans continue to buy so many large cars despite living in one of the most mountainous, densely-populated, best-served with public transport, and smallest countries in the world:

Back in the 1980s, owning a car – any car – was a status symbol. Now, size matters. Among the sedans sold before 2000, there were more subcompact or compact cars than mid-size or larger models. Since then, mid- and full-sized sedans have come to occupy a greater market share than smaller ones. Only 16.3% of the sedans sold in 2006 (as of July) were smaller models, as compared to Japan’s 61.2%, Italy’s 55.3%, Britain’s 52.1% and Germany’s 23.3%. The United States is the only nation among car-manufacturing countries that sells a smaller proportion of small cars than Korea (emphasis added).

Considering the surge in oil prices at the time that would have been written, and the travails of the US car industry just a little later, then this is probably no longer the case, and an apt symbol of Koreans displacing Americans as the “avatars of consumerism gone mad.”

In hindsight though, this shift is less of a surprise and more the logical culmination of Korea’s particular path of capitalist development. Unfortunately, like the Washington Post noted, is also part and parcel of a society currently under extraordinary stress, as is Korea’s steadilydeterioratingeconomy. But one wonders when Koreans will realize that they can no longer afford to fritter their money away on mere status symbols.

17 thoughts on “Korean Sociological Image #14: How And Why Koreans Became The World’s Greatest Consumers”

I think the ‘spend spend’ mentality is not much of a shocker if you are immersed in the pop culture world. Looking at all the merchendising of pop acts and the gifts the groups get for birthdays, (eg; gucci suits, DSL cameras, computers etc) its easy to see that the whole idea of having to ‘have everything and the more you have the better you are and have more social standing’ (in fandom at least) is being encouraged and exploited.

I think you were right to link all this to the economic path Korea has undertaken since the end of the War. Although perhaps it should also be said that Korea is no longer a developmental state, and in fact some would argue that it was the hurried and forced end of the developmental state that led to the 1997 financial crisis.

In the same vein though, I’d like to say something else about how Korea’s economic model has in part led up to this current state of affairs on a strangely societal level. From the Park Chung-hee era onwards, all of Korea’s developmental state economic planners – who, it should be mentioned were generally quite successful – recognised that the best way for Korea’s economy to grow was by producing goods for export. Korea had a massively export-orientated economy. Nobody in Korea was paid enough to have the dispensable income to spend on consumer goods. And anyway, all the consumer goods that were made by Korea were made very cheaply and mostly exported. Therefore, there was most definitely a long period when anything expensive automatically had to be of a higher quality than the standard fare, as it was firstly probably not Korean, and couldn’t have been made by the factories that succeeded because they produced goods as cheaply as possible.

This led to a natural associated of price with quality. Of course, to some extent this is true all over the world, and is a fairly accurate assumption, but I think because of this this attitude became exaggerated in Korea. Most people had to by the same cheap, low-quality goods as everyone else. Anything more expensive inherently had to be of a higher quality.

This is not always so true now, as often we end up “paying for a label,” where differences in quality are not always accurately reflected in price. However, the attitude has remained somewhat unchanged in Korea, where more expensive still means better, which leads to a great “consumer competition.”

I’ll just give one example to try and clarify a bit better what I mean. In whatever country you were born in/live in other than Korea, a top level Hyundai car and maybe a lower level Lexus may be very similar cars, with similar features, reliability, quality etc. The Lexus may be slightly more expensive, but most people will know that you’re paying more just because of the brand – nothing to do with the car itself. The same two cars in the Korean market will have even more of a price difference, but Koreans I would say are far more likely to think of the Lexus – the more expensive – as being the better car, simply because of an attitude left over from a time when the more expensive product doing the same function would undoubtedly have actually been better.

I also heard more than once that Koreans tend to buy something that is more expensive because of their association that “price means quality”. I do not know if this is totally true, however. I know for sure that the Korean market is very complicate, and rough to penetrate, and that competivity is very high, in very large part due to the internet offering highly competitive prices and multiple choice. And I think Koreans are in general smarter consumers than many other countries, and making such a simplist statement tends to affirm the opposite.I know that Koreans will very often look in several places before purchasing something, to find the lowest price possible for example. I heard (from foreigners of course) that Koreans tend to buy the highest priced item even if both are identical, but I really doubt that statement.

I think that brand image, and of course the whole “paying for label” thing is more what makes people in general, not just Korean, pay a higher price for something not necesserilly of better quality, even if the consumer can be perfectly aware of that. Brand image is a very important aspect of consumption, and very often it will dictate what consumers will choose between two things; most of the time what the consumers will be looking for is something that will make them look better to the others. People buy things so others will think of them in a such way. In my opinion, people choose to buy things among others not for them, but for the others, for what they will project to the others.

To come back to your comparison, Hyundai for example, has a more “cheap car” brand image in North America. This is the company’s purpose, to sell lower-end cars in massive quantity at lower prices, and until quite recently Hyundai kept this brand image. However, in South Korea, and other countries of Asia, India for example, Hyundai has a totally different image. Here we can see many high-end Hyundai cars (high-end sonatas, genesis, equus, etc), and the image of Hyundai is very different. People will pay for this brand because its image is good, it has a good reputation, etc. not simply because prices are higher than other cars.

In America, I would be surprised that up until very recently, people would lean over a higher-end Hyundai car than a lower-end Lexus car. Lexus has a luxury brand image, hence it is a sub-company of Toyota explicitely selling more expensive, luxury cars. Hyundai as I said, has a more cheap car image, and I think having a more expensive Hyundai car would probably not look so good, but I know now Hyundai is trying to change their image on the North-American market.

All this to say that the image one projects on the others is ultimately the most important aspect of consumption, and in Korea this is no exception. The big sedans cars will make you look smarter than more sporty flashy looking cars. In America lots of rich older people will drive around flashy sports cars, but here in Korea only younger people tend to do that. People will buy the new slim MacBook at 2,500$ not because it’s way better than the Samsung at 1,500$, but because the brand image and the computer is more trendy. Do they really think the MacBook is of way higher quality? I dont think so. They dont really care. They are happy to pay for the design and for the name.

The air conditioner ad made me wonder about something a bit off topic: are most Korean homes big enough to comfortably hold something that huge? I thought it was a fridge at first. For some reason I always projected Japan’s space crunch and small house sizes on Korea, but I’m just realizing that I have no real evidence to that effect.

Sarah–Korean apartments can certainly seem quite small after living in a house all one’s life, but yes, they are generally big enough (particularly those of the people able to afford those air conditioners!). If you haven’t been here, then you may not realize that Korean apartments tend to be much bigger than Japanese ones, as not living in an earthquake zone means that most apartment buildings are much taller, thus packing more and bigger apartments into the same space.

Not that we don’t get tremors though: I was sitting not 100m from where I type when we got a biggish one in 2005, and being 14 floors up, it wasn’t reassuring to learn that something like only 18% of Korean buildings are built to withstand earthquakes (on the plus side, that tremor promoted the toughening of standards for new apartments).

Seamus– I agree with the gist of your comment – I’m a huge fan of the developmental state concept – but am puzzled by your point that “nobody in Korea was paid enough to have the dispensable income to spend on consumer goods.” The percentage growth in real wages certainly trailed quite significantly behind that of the chaebols’ export earnings for quite some time, but this was the corollary of the need for capital accumulation, and by the late-1970s at least workers certainly did have the wages for – and defined their own status in – the purchase of consumer goods. Besides which, ever since Korea’s initial phase of ISI, Korean industries were heavily protected by high tariff barriers. So while for a long time Koreans both didn’t have the money to buy anything and there wasn’t much to buy anyway, the only option was to buy Korean…and to shut up and stop complaining about the poor quality, high price, and lack of variety (oops: like you said)!

Not that that doesn’t actually add to rather than detract from your other points though!

Everybody… repeat after me… Figures don’t lie, but liars can figure… I’m always very suspect when I see these kinds of graphs and read these kinds of stories (the one in the WaPo, not James’ story). In fact, I think it’s all those grains of salt I have to take when reading them that has given me high blood pressure ^^

I’d be curious to know, what consitutes a “household” or “disposable income” in the graph? Are Koreans saving less or just have less disposable income (or both)? Or, have the number of households in Korea increase dramatically?

James, I’m surprised that you didn’t at least entertain the notion that much of this has to do with the low birthrate and increased number of smaller families and even childless families in Korea as well as, albeit small, an increase in the number of young people living on their own. No doubt, young single people living on their own would have little disposable income and therefore little (if any) savings.

Also, I wonder what, if any, influence the shift from pre-paid leases for apartments (전세) to monthly rent (월세) has had on savings rates? If all those apartment owners are no longer receiving large sums of ‘key money’, then that could have an impact on savings, no?

Finally, does anyone remember when the ‘real name’ banking law was implemented in Korea? I wonder what effect that had on savings rates? I think that happened in the early 90s (1993-ish) so it was probably long before the big drop in savings shown in the graph, but wouldn’t it be interesting if the two dates coincided?

If I remember correctly, the real name system came in under Kim Young-sam, making it about that date. It must have had quite an effect, as politicians and others had to account for all the money they had stashed away from that point. Banking in secret or via proxy led to a lot of hoarding in secret, so to some extent I think you’ve got a very good point there.

Two reasons mentioned by Walter Foreman for Korea’s declining savings rate – the institution of real-name banking and the increase in single households – have probably contributed to the drop. The savings rate plummeted by more than half around 1997-8 and continued downward. It appears that many Korean households never returned to pre-IMF prosperity. I knew of several married men who were laid off and subsequently found other employment at lower salaries, resulting in less disposable income as mentioned by Walter.

Moreover, it’s a bit unfair to compare the savings rates only and declare Koreans big spenders because, as K-blog commenters have mentioned, Korean households spend a large portion of their disposable income on education, which is an investment, not simple material consumption.

I’m loath to read too much into the statistic because there are important concomitant statistics that are simply not presented.

What we see is a drop in savings rate as a proportion of disposal income. Well, has disposable income remained steady? Has it dropped? Has it gone up? I think what you are presenting is valid analysis, but without these related stats to paint a broader picture, we may be looking at something that is actually pointed in an entirely different direction.

An example not related to this particular stat but which illustrates what I’m talking about is the growing trade surplus. On the surface, that could indicate all kinds of things, including a stronger economy or a greater acceptance of Korean goods abroad. But if one looks at the fact that both exports and imports have dropped precipitously, only more so with imports, then it’s an entirely different picture altogether.

This is speculative, but what if disposable income has dropped because more people are choosing to live away from home, which drastically cuts into disposable income but does little to curb personal spending (in fact, may increase it in some cases). Or what if there has been a shift in attitudes from savings in a bank to investing one’s money in a home (which themselves are increasingly expensive), which would also reduce disposable income AND the perceived need for savings.

Prior to the 2000s, throughout the 1990s at least, marketing campaigns hawked the same “latest” refrigerators, the “must-have” items of this or that, so I’m not convinced that runaway savings is really the culprit here. I’d like to see more background on the stats.

not living in an earthquake zone means that most apartment buildings are much taller, thus packing more and bigger apartments into the same space

South Korea is an earthquake zone. Its earthquakes are less frequent and on average of considerably lower magnitude than neighboring Japan, whose earthquakes are also felt in South Korea, but it is nevertheless an earthquake zone. The biggest are usually in the 4- or 5-point range on the Richter scale.

Earthquakes are considered in construction, but like Kobe in 1995, I fear that if an unusually large earthquake (say 6.0 or higher) were to occur, some buildings would be rendered useless, even if they don’t topple onto their residents (Korea’s ubiquitous use of ferro-concrete construction bodes well for earthquake survival).

Not that any of this has to do with sociology, and your point about how it affects housing is apt.

Walter, Kushibo–I realize now thanks to your comments that I did very much take the facts presented in the graph (and Washington Post article) uncritically. But the sourceis mentioned, and although I wasn’t able to find anything on this particular issue there that didn’t require subscriber access or press accreditation unfortunately, I’m sure that a more detailed explanation of the methodology will be there. Not that you’re implying that there isn’t or that detracts from your points of course.

Walter–Not mentioning those subjects was indeed a surprising oversight on my part…mentioning them so often on the blog though, sometimes they just become part of the furniture so to speak!

Whatsonthemenu–In case you or others reading weren’t aware of it, one more factoid adding to the fact that a great many Koreans never returned to pre-IMF levels prosperity is the fact that many of those men (and especially women) that lost their jobs chose to set up their own businesses instead, and now, at 33% of the workforce, the level of self-employed in Korea is the highest in the OECD (not by coincidence, Korean taxis are ubiquitous and extremely cheap). This sector has been hit brutally by the recession though.

I agree and disagree with you on Korean household spending on education being an investment, and not simple material consumption. Obviously when getting a child into a SKY university will bring big material gains in the future then it is indeed an investment for the family involved, although this hardly bodes well for the future of economy as a whole (from this blogger’s take on the issue, I’ve learned that the economic term for this is “signaling equilibruim”). But considering how much of an investment families do indeed make in their children’s education here, I find it just bizarre at the complete lack of concern and interest most parents seem to express in what is actually taught at institutes (학원), much of which will by no means help them get into a SKY university, and I concluded long ago that sending children to institutes was both a form of de facto childcare and just the thing that “proper” parents had to do and be seen to be doing. Which lends naturally to a “keeping ahead of the Joneses” mentality, albeit with which institutes are attended, what number, and how long for and so on rather than lawn ornaments and fountains in the front yard.

I grant that in all likelihood not a single Korean parent would ever claim anything other than that they have their children’s educations very much in mind, but after 9 years of teaching in (mostly) institutes I could write all night about examples of Korean parents never seeming to spend just 5 mins thinking about what exactly they’re spending their money on. Just one that readily comes to mind though, is of an old adult student of mine, a successful business man in his late-40s with fluent English, and whom I considered intelligent, polite and, with some amusing stories from his military service days. But once, he casually mentioned that he paid an English-tutoring phone service to have someone call his 15 year-old son and chat in English for roughly 12 minutes each day. When I suggested that perhaps he should pocket the money and – heaven forbid – speak to his own son in English for 12 minutes himself…I’m not exaggerating when I say that he looked like he literally couldn’t grasp the concept, and/or that I was simply out of my mind for coming up with such an outlandish…such an alien suggestion. The unspoken point that “foreigners will never understand Korean ways” hung heavy in the air, so I quickly asked him about where he’d be drinking with this colleagues after class…for the 4th time that week.

Kushibo–Before I forget, not that you mentioned it, but sorry your comments keep going to spam for some reason. I’ve checked all my spam filters and so on, but nothing that would flag you is amongst them.

As for the earthquake zone thing, yes I couldn’t agree more, and the knowledge that buildings wouldn’t be up to code wasn’t exactly a reassuring thought to flash through my mind as my chair started bouncing me up and down 14 floors up when the big tremor hit Busan a few (5?) years ago. Don’t expect any links sorry, but I taught at a company later whose employees were quite happy with all the extra demand for their engineering expertise and steel because of new building codes that came as a result of that, and from my own observations as part of that code new apartments above a certain height (30 floors I’d say) must have helicopter pads on the roof. Presumably riff-raff that can’t afford to live in a building as tall as that aren’t worth the expense of saving, yes?

korean people like to be like the US. they copy almost everything the US does. they are in a buying frenzy because the US did the same thing in the past(the Ticky Tacky Days?). korea just decided to do it about 30 years late. LOL

korea needs to stop being pussies and stop lookin up to a back stabbing big brother like good old america that sells fucked up mad cow desiesed cows to korea and buys lovely beef from australia for themselves.